The booming of Japanese Whisky

Japan always comes with its own class, no matter food or spirits. For whisky, they used to have a very humble beginning. Japanese whisky production generally follows the methods originally developed in Scotland. However, do not be misled into thinking that Japanese whisky is a mere impostor. There are several differences, which set apart Japanese whisky into a class of its own. As with many other foreign-born creations, Japan has in a way, taken a blueprint and added its own flair to create a unique product that is commendable in its own right. In some ways, the East-West connection has come full circle, as Scottish producers have adopted certain techniques developed by Japanese distilleries. There are a number of ways in which Japanese whisky production veers from its traditional Scottish roots. Variations in ingredients, equipment, and method produce whisky that, while bearing a resemblance to its predecessors, is distinct spirit characteristic of Japan.

Prepare to change the way you think about whisky when you sip the Yamazaki single malt on the rock in an exclusive & decent Japanese whisky bar. The pursuit of perfection is important in Japanese culture. It can take eight long years to become a sushi chef. It takes at least three to master the tea ceremony. If you want to drink whisky highballs the Japanese way, what you really need is the right-size bubbles in the right kind of soda water, and it’s useful to have an ice-making machine that freezes the water extra slowly to produce huge, translucent blocks of ice as clear as a pond in a Zen garden. 

Besides, they also seemed to create the brand new image for whisky, unlike scotch’s masculine, sophisticated and boldness; Japanese whiskies are more delicate, pure and fresh, feeling like exploring a crystal world of subtle emotions, this distinctiveness shows especially in their commercials. Take an example of Yamazaki’s single malt ad:

https://www.youtube.com/watch?v=M4InJWVVuRE

http://japanistas.com/en/archives/59095 

http://www.afr.com/lifestyle/food-and-wine/wine-and-spirits/spirited-away-by-japanese-whisky-20140508-itvbe

Millenials Leading a New Wine Revolution?

A recent article declared that the meatpacking district was leading the wine revolution across America. With interest in pricing and economics, amongst regional variety combined with a fantastic tasting experience. "As the cocktail scene across the country has grown geekier, more ingredient-driven, more hipster, and less friendly, the area of town that was so bound to mixed drinks has consciously uncoupled, and taken up a new fling with wine."

This makes sense when Millenials drank 160M bottles of wine in 2015, and an average of 2 cases/person/year or 3 glasses/sitting. Baby Boomers account for 30% of all wine consumed in America. We are the "silent generation" of wine drinkers. But apparently not so silent after all. 

http://ny.eater.com/2016/3/7/11175150/wine-meatpacking-district

The Business of Growing Grapes

Throughout the class we’ve talked about a number of businesses like Cannonball Cabernet and The Middle Sister, which produce wine but do not grow their own grapes. This got me thinking, what about the opposite end of the spectrum - businesses that grow grapes and sell to brands like Cannonball Cabernet and Middle Sister (rather than making wine themselves)?

I’ve discovered that the business of growing grapes is heavily focused on the vineyard site and reputation of the land where the grapes are grown.   The origin of grapes is important because winemakers are able to justify a premium price for their wines if the grapes are sourced from desirable locations like Napa Valley (for Cabernet) or the Russian River Valley (for Pinot Noir).

As a result, many grape growers will target selling their grapes to either 1) bulk wine producers or 2) high-end, boutique wine labels.  In California, gapes sold for bulk wine production are typically planted in central California. If you’ve ever made the drive from LA to San Francisco, you’ve likely seen rows and rows of unmarked vineyards planted for bulk wine production.  For these grape growers, low prices and high yields are valued over the quality of the fruit.

On the flipside, there are a number of high-end grape growers that have top winemakers vying for the opportunity to buy their grapes. These ‘premium’ grapes are so in-demand that winemakers will often include the name of the ‘premium’ vineyard on their wine label. 

Hirsch Vineyard: Sonoma Coast

One of the most notable Pinot vineyards is the Hirsch Vineyard, located high on a ridge on the Sonoma Coast, 2.5 miles from the Pacific Ocean. The remote Hirsch Vineyard provides fruit for some of the finest Pinot Noirs in California, including Littorai, Williams Selyem, and Failla. 

Beckstoffer To Kalon Vineyard: Oakville, Napa Valley

Another source for high-end grapes is the Beckstoffer To Kalon Vineyard in Napa Valley.  Owned by Andy Beckstoffer, this site was first planted in 1868 and has long been a source of great Napa Cabernet Sauvignon. Grapes from this vineyard have historically been sold to Opus One, Paul Hobbs and other high-end Cabernet producers.  Beckstoffer To Kalon Vineyard sells their grapes for a price that’s ~5x higher than the going rate for a ton of premium Napa Cabernet.

Overall, growing grapes and selling to wine labels is a challenging, capital-intensive business. These growers are susceptible to weather risk, changing consumer tastes, and the reputation of their vineyard site.  As shown in the table below, the market price of grapes can vary drastically based on the grape varietal and the vineyard site. I find this data fascinating because it shows how much power consumer preferences have on the price of grapes.

Napa Green

In class on Friday, Ivo mentioned Napa Green, a certification I've seen but never studied. Ivo mentioned it in a critical way (in comparison to biodynamic and organic) so I thought it might be worth looking up. According to the Napa Green website, the certification is a comprehensive, environmental program for vineyards and wineries in the Valley. In order to become certified, the winery or vineyard needs to meet or exceed 20+ best practices. Its aim is to increase ecological health and reduce energy/water use/waste/pollution.

The certification was started in the late 2000s and as of mid-2015, there are 34 wineries certified and ~61,000 acres certified or pending certification. Napa Valley Vintners Association wants to see these numbers rise over the coming years. They estimate that ~100 wineries and growers in the Association currently meet the requirements for the certification. They hope all eligible members will seek certification by 2020.

After doing some google searching, I discovered that the majority of articles related to Napa Green are sponsored by partners of the program (e.g. Napa Green, Napa Valley Vintners), certified wineries, and local Napa Valley newspapers. There appears to be very little buzz about it coming from other sources. Additionally, I have yet to see Napa Green on a wine bottle (it's probably on some bottle somewhere but not readily available), although it is allowed under certification rules. Based on those facts, why are Napa growers and producers seeking this certification? Is it a genuine desire to be good environmental stewards? Are most of the requirements covered under biodynamic or organic so there's little marginal cost? Are wineries/growers hoping this becomes another signaling mechanism in the marketplace that just hasn't fully developed yet? I'd love to have someone from Napa Green explain what the market value is for its certification seekers.

Sources:
http://napavalleyregister.com/news/local/vintners-group-wants-napa-green-expansion/article_e5c6df07-f432-5aab-b78e-9915839f9630.html
http://napagreen.org/about/

Production Process / Napa Job Reports

We have spoken a lot recently about important issues concerning branding, authenticity, pricing, and distribution; however, I think I personally lost sight of some of the production ideas we discussed earlier in the quarter.  One reason (among many) that it was so great to hear from Ivo Jeramaz this past Friday was his discussion of the production process and how it relates to the company's branding and authenticity appeal.

I found it especially nice to hear how much respect and care he has for employees on the vineyard and how this relates to the wine story.  I was struck by his reference to the connection between the care a company has for its employees and the care they will have in producing the product - in this instance, the care they will have for the grapes.  As part of his story, this translates into better grapes and better wine.

My question for him focused on some of the mechanics of work (full-time vs. part-time, months of the year, etc.) and I decided to do a bit more research.  Napa (chosen given its proximity to us) specifically is enjoying some nice job growth, and has a current unemployment rate of 4.8% (vs. 5.8% a year ago), which is down from its peak of 11.4% in January 2010.  The number of people looking for a job dropped 16.7% from a year ago.  The majority of people in the region are involved in the wine industry according to the report.

http://napavalleyregister.com/news/local/unemployment-dips-in-napa-county/article_c049cbd0-4182-5392-bc1b-db46894d2877.html

The strength of the wine market has also had effects upstream on the real estate market for land and homes.  The median price of houses rose 4.7% in 2015 to $550,000 and the number of days it took to flip a home declined to 83 days, the shortest since 2005 (please see link below for source of statistics).  The strength of the economy, however, has resulted in a 10% increase in the average price of rentals over the past year.  The linked article below (where these statistics come from) raises the dual impact of the wine industry success: on the one hand, unemployment is low, new businesses are starting, and real estate values are up; on the other hand, such growth can have significant impact on those that are renters and / or low wage earners to the extent they are priced out of the market as more capital moves into the region.

http://napavalleyregister.com/news/local/napa-county-economy-shines-in/article_6bb33674-43b4-599f-bdc0-d9c8230561a3.html

Challenges for Craft Distilleries

Sitting in class on Monday sipping whiskey got me thinking about the state of craft distilleries in the US.  I know that craft beer has been exploding, but I've only ever seen 2 craft distilleries in my travels around the country

I did some research in the space and learned that while the amount of craft breweries has grown by 400% in the last decade, there are still only about 250 craft distilleries in the US.  The reason is largely due to arcane, prohibition-era rules about distillation.  These rules are still on the books largely due to successfully lobbying from the craft beer industry, which was surprising to me.  Of all parties, I would presume they would support local ventures such as this.  Instead, sensing that spirits are a substitute product and would steal market share, craft beer companies have fought hard to keep barriers to entry high.

In Indiana, my home state, there remains a law on the books that no license can be granted to a craft distiller without first holding a craft brewing license for at least 3 years.  Such a law makes entry to spirits extremely difficult.

I know that I personally would patronize both craft breweries and craft distilleries.  For wine we have Free the Grapes, maybe for spirits we need Free the Mash...

Scotch Supply-Demand Inbalance

See the below article:

http://money.cnn.com/2016/03/04/luxury/global-single-malt-scotch-whisky-drought/index.html

Per the conversation of our last class, global scotch supply is tight and dropping fast. Demand from established markets, as well as emerging markets, is simply outpacing supply of quality aged scotches. In the U.S., annual sales nearly tripled between 2002 and 2015. Asia now accounts for one-fifth of all Scotch exports, buying up a quarter of a billion bottles a year. The biggest supply constraint is aging. Macallan can greatly increase production this year, but there is a time lag associated with it because all Scotch whisky must be aged for a minimum of three years.

It's to the point where someone has launched a commodity speculation fund to purchase and hold whisky investments: "The shortage of old and rare single malt ... has already started, and it's going to get worse," said Rickesh Kishnani, who launched the world's first whisky investment fund." So if you get sick of derivatives and greek bonds, start speculating in whisky.

Spirit of Rudolf Steiner

On the topic of biodynamic winemaking, it's worth giving a bit more background on the philosophical background to the movement.

As our reading describes, the idea originated with Rudolf Steiner, an Austro-Germanic naturalist who was inspired by readings of Eastern (Asian) philosophy and literature -- particular from the Indian subcontinent -- to create his own philosophy that melded Eastern and Western elements. This "Anthroposophy" was a reaction to the mass production modernism of the 1920s in much the same way that the modernist art of his time was.

Steiner was a passionate architect, and his buildings exemplify a lot of the core tenets of the movement (see the movement's current headquarters, the Goetheneum, and its older version). Whimsical, natural, faintly eastern. You can read more about the philosophy here, but as our reading also noted it was largely focused on aligning and returning human existence to harmony with nature. In the architecture, you see that in the curves and embellishments of the stone walls, which resemble the boughs of a tree. Similarly, the furniture at Waldorf schools (the movement's educational arm) should be entirely made of carved wood. Schoolchildren all learn how to plant gardens and work with natural crafts from very young ages. Steiner based his works, which extend across epistemology, science, medicine, religion, economics, art, drama, and politics, around this principle.

Incidentally, I have a close personal connection to Steiner. He was close friends with my great-grandparents and personally named my grandmother and her siblings (with very old-fashioned Wagnerian German names...very odd). My entire Dad's side of the family all went to Waldorf schools. Let me know if you'd like to hear any stories!

Worldwide Shortage of Single Malt Scotch: Trends and Opportunities

There is a interesting CNN article that came out today which echoed a lot of the industry trends in the world of Scotch that we covered in the previous class.

Back in the 1980s, many distilleries closed and worldwide production capacity was reduced.  The resurgence in demand over the last decade has therefore created a constraint on available supply, especially the supply for older, age-labeled products. Historically, distilleries typical produce a set quantify each year with no way to predict the demand down the line when the whiskey matures.
Therefore, there is no way to remedy the current shortage of older vintages, and analysts foresee a shortage in the older age-labeled products to last at least 10-15 more years.

To keep up with market demand, distilleries have began adding production capacity, but are constrained by the minimal aging requirements for scotch. As discussed in class, many brands are releasing non-age labeled products to meet the growing consumer demand.

Given the underlying market tailwinds, whiskey appears to be a very interesting asset class to invest in.  Riskesh Kishneni has actually raised a $10 million fund thus far to invest in a portfolio of 7,500 bottles of rare whiskies.  Accredited investors can get a piece of the action with a minimum $250,000 investment. The first whiskey investment fund actually takes inventory of bottles purchased.  In the future, as the overall size of the niche segment expands, it would be interesting to see if a more developed derivatives market will emerge for this asset class.

Source:
http://money.cnn.com/2016/03/04/luxury/global-single-malt-scotch-whisky-drought/index.html

Do biodynamic wines appeal to you?

Having read the 'Moonshine' reading I have completely turned away from wanting to drink biodynamic wines.  I understand that they must be better for you (i.e. they are far more natural then some other wines), however, I am finding it really difficult to want to consume a wine that has been produced in a biodynamic fashion.  For instance, I find the 'preparation 500' concept that gives life forces to the vines a little nutty.  The practice of burying manure in cow horns at the fall equinox and then spreading this manure (once dug up) onto the vines is not something that I find induces me into wanting to try these types of wines.  I understand that these wines arguably taste better, and that they command a higher price, however, do they really appeal to you?  

Many thanks,
Dave

Lessons from my spirit animal, Martin Daraz

This past Monday I think I found soulmate and his name is Martin Daraz. Among the many hilarious stories and incredible facts he shared with us, the one that stood out the most to me was the price of the most expensive bottle of whiskey -- $25,000 which, naturally, he seemed to regard as ridiculous. The aforementioned bottle is a 50-year old single malt by Glenlivet and is called the Vintage 1964, a reference to when the liquor was first distilled and put into the barrel.

The company ensured that only 100 bottles would be available worldwide, starting in October (only five of which are for the US market), at a retail price from $25,000 apiece. Now this seems like an absurd way to an entire quarters worth of tuition on ONE bottle of whiskey (though some quarters it may have actually been a better use of money, but I digress). However, Glenlivet has ensured consumers that the price is worth it as they are also getting a bottle made of handblown glass with a stopper made out of pure sterling silver plated in rose gold and containing quartz. But that’s not all. The bottle is housed in a thoroughly handcrafted wooden cabinet complete with a special hidden key. I suppose if I paid that much for a bottle of wine, I would probably guard it more than my children.

This is a picture of the bottle and all its accoutrements

For paying this much, I wonder what event is actually significant enough to actually decide to open up and drink some. This seems kind of like a Last Supper or death row final meal kind of drink for me.

Surprisingly, this is not even the highest priced whiskey on the market. There is a 50 year old malt whiskey from Glenfiddich, which is available on their website and retails for £22,850 (or $33,700). There are only 50 of these bottles in existence and they often are available on auction.

So this begs the question of why? Why on earth does a 15 year old Solera whiskey from Glenfiddich retail for a mere $42 while others are over $20,000? The answer, Martin explained, is in the fact that the by the time a 21-year bottle of whiskey has aged, 30% to 40% of what was in barrels is gone due to natural evaporation. In other words, a lot of what a distillery actually started with does not even make it into a bottle. Given these production aspects, Daraz explained that the rarity of these whiskey batches command a higher sticker price. Sotheby’s had a MacAllan auction in 2012 which sold a bottle of scotch for $460,000 with a portion of total proceeds going to charity. Martin also says it’s a safer investment than gold as the amount of money spent investing in whiskey will have outsized returns relative to any investment in a major stock market index. Given the expectation that top super malt prices will continue to grow substantially, it is no surprise that many people would think to invest in or collect whiskey in the same way they invest in or collect fine art.

Personally, I still find this highly irrational and perhaps not the wisest or most prudent investment given the expected drop in whiskey drinkers from a generational standpoint. But who knows? Maybe my consideration of this asset class will have changed by the time that I make my first million..

Boom and Bust in Whiskey

We heard on Monday about the fantastic growth that whiskey has enjoyed across the world in the past several years. The growth has been so rapid that it’s put considerable strain on inventories, no small problem in an industry where the product must age for years before it’s marketable. Some have even declared a “whiskey crisis” in larger markets, as supply proves insufficient to meet demand. While part of the alarm may be savvy marketing, the supply crunch is real.

Or, at least, it was. Export of Scotch fell sharply in 2015, down 11% in the US and an alarming 41% in Singapore, another large market. Diageo put its £1 billion whiskey capacity expansion project on hold. While many new distilleries are still opening, the industry seems significantly more cautious now than it was a few years ago.

It turns out that these wild swings in fortune are nothing new in the whiskey business. Indeed, the industry seems to follow 10-20 year cycles. The product has all the features of difficult to forecast, boom and bust markets: very long lead times, fickle consumption, and a collectability dynamic that exacerbates shortages.

The last big demand boom came in the late 1960s and 1970s. As now, the market got very tight and people invested a lot of money in new distilleries. The result was a “whiskey loch”—a lake of whiskey flowing from the new investment. Unfortunately, the lock hit the market several years down the road, when demand had cooled. Whiskey sold in grocery stores for the same price as the cheapest vodka, which doesn’t carry the cost of aging. As a result, many of the newly built distilleries closed. This reduction in capacity arguably has a lot to do with the current spike in prices.

The question is whether whiskey’s growth today is merely another boom before the inevitable bust or a structural upward shift in demand. Optimists point to the opening up of Asian markets to whiskey consumption. Asian consumers have developed a taste for whiskey, particularly high-end, prestigious Scotch. In the last boom, Asian consumption was negligible. But pessimists say that a lot of the growth comes from a faddish trend for whiskey—great for the industry in the short term, but disastrous if investment chases it.

Diageo’s discipline in their investment plan hopefully augurs for a more rational approach in the future.

Tales from the Cellar

As we have heard from several of our guests, storytelling in wine is one of the most venerable of marketing and advertising schemes. Give the consumer an interesting character he can relate to in an advertisement, and half of the sales job is done, right? Well perhaps it’s not that simple.

I spent the first part of my summer working with Esporao, a Portuguese table wine producer in the Alentejo region. On day 1, I asked what was the company’s primary focus was thinking they would mention some of the usual suspects – growth in the Chinese markets, understanding how to capture the younger generation, how to enhance the perception of Portuguese wines beyond Port and Vinho Verde. The one resounding answer of their primary focus? How to enhance the story of their history and operations and incorporate that effectively in their enotourism efforts. Essentially all of my colleagues were focused on trying to find ways to help Esporao become more engaged with customers, but struggled to figure out exactly HOW to tell their stories in a way that came across to new and existing customers authentically.

Brand storytelling is effective in establishing rituals, showcasing product benefits, and generating excitement but what happens when every wine brand is thinking the same and hoping to somehow find a way to differentiate their story? And what about New World wine brands with a very limited history?

Brand Strategy Manager Matt Sitomer addressed exactly this in during a wine panel moderated by marketing and wine industry professionals about the path to new wine marketing as he has a five step plan to helping wine marketers transform themselves into storytellers.

1. Figure out who you are

Review your winery’s origins and ethos. Sitomer suggests asking yourself simple but essential questions: “Why does this winery exist in the first place? How did it come to be? What does it stand for?” The answers will help you define your enduring brand points, which you can use to drive content marketing across channels. So for example, if food-friendly wine is part of your brand ethos, then “Go all in on food and wine. Make it all about that,” he says.

2. Decide how your enduring brand points differ from your neighbor’s, then make that difference central to your approach across all channels

3. Build stories with tension points and conflict

If you think of your brand as a protagonist in a story, ask yourself, What is it trying to achieve? What’s in its way?

4. Keep it fresh

Let’s say you’ve successfully built a dedicated fan base around your brand. Your loyal customers always know how to find your wine on store shelves. How can you innovate without alienating these important consumers? To get the answer, go back to fundamentals, conducting qualitative and quantitative research to understand what drives the consumers’ connection to that brand.

5. Continuously refine your voice

Try a brand voice session, suggests Sitomer, gathering your team and posing questions like, “How would this brand say thank you? How would it say hello, or goodbye?” Find that voice, then figure out how to keep all communications human and conversational.

I suppose the idea is not necessarily to tell a story just for sake, but rather as a means to distinguish your genuine story from competitors. People tend to forget that quality must precede the story. You can tell a story about a mediocre winery and the winery will still be mediocre. Conversely, every story about a great winery seems to be a great story. I don’t really foresee Andre sparkling wine improving their brand through storytelling unless if to tell consumers about the massive hangover they should expect from two glasses of their wine, but I digress….

Source: http://www.nomacorc.com/blog/2015/02/storytelling-is-the-new-wine-marketing-five-lessons-wine-brands-shifting-toward-narrative/

Time Cycles and Whiskey / Wine

One of the topics I was considering throughout Martin's presentation on Monday was the role that time and product cycles play in these industries and whether it differs materially vs. that of others.  Specifically, whisky has historically been a product where age is correlated with value, at least for a lot of brands and styles.  With this in mind, how does one start a business where its key product will be on a 12+ year cycle, or the time between production and consumption?  Even if one has the patience and capital to wait, the risks could potentially be immense due to a shifting market landscape over this time period.  This relates to wine, but perhaps to a lesser degree, since there are so many varietals that require significantly less time to get to market.

Part of the solution here for whiskey may be related to some of the new brands we saw on Monday that require significantly less time for ageing.  It appears that whiskey brands are moving away from putting age on the bottles, and I would imagine that this trend would help start-ups and younger companies as they look to compete in the market.  Perhaps the market is growing so rapidly that there is just so much space for new entrants and the incumbents are focused inward, but I am surprised that more established brands have also begun taking age off of the bottles.  I would have thought it would serve as a competitive advantage and barrier to entry; however, it appears the opposite is occurring.

I ran across an interesting article on the blog Eater, which speaks about the trend of moving away from age.

http://www.eater.com/drinks/2015/5/21/8633711/does-whiskey-need-an-age-stamp-to-be-good

No Age Statement Whiskies and the Power of Good Storytelling

Following Martin’s very entertaining presentation to our class on Monday, I thought I might look further into two of the Scotch Whiskies he brought for us to taste: the Macallan 12 and the Highland Park Dark Origins.  One aspect of the comparison that I found particularly interesting was the age statement vs. no age statement (NAS) distinction.

First, some background on age statements.  Unless it is expressly stated otherwise, one should assume that every single malt (really, single distillery) Scotch one buys with an age statement is actually a blend of whiskies of different ages.  It is common practice to blend in this manner, for a variety of economic and aesthetic reasons.  However, according to the regulations governing Scotch, only the age of the youngest whisky used in the blend may be stated on the label.  It is entirely up to the distillery/blender to determine how much of the youngest whisky will be used in the final blend.

Next, some numbers:

Macallan 12 Y.O. (Sherry Oak)

Strength: 43% ABV

Price: $51 at BevMo

Macallan 15 Y.O. (Fine Oak)

Strength: 43% ABV

Price: $105 at BevMo

Highland Park 12 Y.O.

Strength: 43% ABV

Price: $47 at BevMo

Highland Park 15 Y.O.

Strength: 43% ABV

Price: $90 at BevMo

Highland Park Dark Origins

Strength: 46.8% ABV

Price: $79 at BevMo

Comparing the Macallan 12 to the Highland Park 12 shows that, on the “low” end of the range, the Macallan brand commands a higher price than Highland Park (8.5% more expensive).  This difference increases dramatically in the more expensive expressions.  At 15 Y.O. Macallan is 16.7% more expensive, at 18 Y.O. it is 59.7% more expensive ($230 vs. $144 per bottle), and at 30 Y.O. it is 487% more expensive ($3400 vs. $700 per bottle, adjusting for the Highland Park’s higher ABV of 48.1%)*.  I think this speaks to the point Martin made in class about the more or less inexplicable explosion in demand for Macallan over the last decade or so.

Anyway, with regard to the NAS whisky we tasted, if we assume that price increases linearly for Highland Park whiskies with age statements between 12 and 15 years, and that the youngest whisky in the Dark Origins blend is somewhere within this range, 43% ABV Dark Origins is priced like a Highland Park with an age statement of roughly 14 years.  Of course, since the distillery does not disclose the content of the blend, we don’t know how old the youngest component is (or the average age, which in this case is likely similar).  But this age is certainly less than 14 years, and probably considerably less.  Assuming that storage costs remain roughly the same each year, that advertising costs for Dark Origins are not significantly greater than average for a Highland Park, and that the whisky sells well, moving the average age down makes for a more profitable product. 

Just for the sake of argument, let’s say that the average age of the whisky in Dark Origins is 13 years.  How does Highland Park go about selling a 13-year-old whisky for the price of a 14-year-old whisky?  Tell a better story!  If you look at the narratives surrounding both the Macallan and Highland Park distilleries they are remarkably similar, and, in my opinion, pretty dull.  Macallan’s story has six “pillars” (a nice old estate house; small stills; high initial ABV; sometimes-sherry-oak casks; no artificial coloring; and high quality spirit).  Highland Park’s story has five “keystones” (hand-turned malt; aromatic peat; cool climate for maturation; sherry oak casks; six-month harmonization period).  Beyond this, neither distillery really bothers to tell much of a story for their age statement whiskies.  The Macallan Sherry Oak 12 is “a dram to be enjoyed with friends,” while the 25 Y.O. is “a distinguished dram for a respected gentleman.”  The $3000 30 Y.O. is “reminiscent of an orange grove.”  The $3000 40 Y.O. Highland Park is “the culmination of years of our finest whisky making experience.”

Contrast these one-liners to the Dark Origins story.  Dark Origins celebrates the founding of the Highland Park distillery by Magnus Eunson at the end of the 18^th Century.  Eunson was a beadle (church officer) by day, whisky smuggler by night, and a “born character, brimful of pawky humour and resource, which extricated him from many a scrape.”  The Dark Origins product page links to a very thematic YouTube video filled with shots of full moons and dark alleys.  Black and silver are used extensively on the packaging, and a shady-looking smuggler guy is depicted on the box.  The heavily-sherried spirit is described as having a “beautiful dark color,” with “dark fruit” flavors and “deep, dark spice notes.”

I don’t know how well Dark Origins is selling, but given that Highland Park has been producing Viking-themed NAS whiskies for a while it is probably safe to assume they are not losing money on it.  Keep in mind: if Dark Origins is in fact a 13 Y.O. whisky, its ABV-adjusted price is about $2 higher per bottle than a (hypothetical) 13 Y.O. Macallan.  Yet another example of the power of good storytelling.

* I considered the Macallan Fine Oak and Sherry Oak offerings interchangeable for the purposes of this analysis.

Sources:

Scotch Whisky Regulations (see document p.13).

http://www.scotch-whisky.org.uk/media/12744/scotchwhiskyregguidance2009.pdf

Macallan six pillars (see document p.9)

http://www.themacallan.com/media/30704/final-tm-brand-book-spreads.pdf

Highland Park five keystones

http://highlandpark.co.uk/keystones/

Dark Origins Product Page

http://highlandpark.co.uk/shop/highland-park-dark-origins/

The Role of the Wine Shop

This article from the New York Times just hit my News Feed: How to Choose a Wine Shop.  In this article, the NYT says "If you care about wine and want to drink better and more confidently, the best thing you can do is cultivate a close relationship with a good wine shop."

What do you think?

We've spoken a lot in class about how one of the things that makes wine an interesting industry to study is that consumers love it and love to love it, but most wine drinkers have no idea what to buy and why.

We've touched on the role of the critic, the role of blogs, the role of friends and family, the role of the media, the role of apps like Vivino and finally, now a new player: the role of the wine shop in educating and shaping the tastes of wine drinkers.  No, not your Bevmo's, but your boutique, friendly neighborhoods.  Just as consumers are turning to craft beers and micro-distilleries  (as we talked about last class), are smaller, locally-owned, high touch wine shops the future?

The article says yes, that "customers who cannot confidently scan a website or who don’t buy in quantity must visit a store."

If this is the case, then it is not about choosing your wine, but choosing your wine shop.  Certainly, this is a less daunting tasks- there are likely fewer local wine shops than wine SKUs inside of them. 

The NYT gives a few tips to help consumers pick a shop:

1. Temperature of the shop
2. Conditions (like light and dust)
3. The level of personal investment in the descriptions at shelf
4. Hospitality and personal attention: Does it feel transactional?  Are the displays set up with more thought than varietal or country?
5. Relationship-building: For example, do they save data on what you buy so they can better recommend wines to you during your next visit?  

In addition to making me think about the role of the wine shop in educating consumers and guiding purchases, I also found myself thinking about some of the regulatory conversations we had.

First, if consumers start to rely on wine shops for their purchase decisions, what does that mean given how producers and retailers are allowed to interact?  If this trend develops as the NYT suggests, will it benefit smaller producers, which could help shops differentiate themselves as experts?

Finally, I find it interesting how the NYT names specific wine shops.  I don't know what regulations exist around a practice like this, but I would love to know how these shops made it to the page.

What do you think?  And do you think this relationship between shop and drinker could be a Millennial thing or better-suited for older segments?

The “De-Parkerization” of the Bordeaux wine

Robert Parker is by far the best-known wine critic in the world, who has announced that he would no longer taste Bordeaux en primeur earlier last year. Mr. Parker said that, after more than three decades of reviewing en primeur, he is not retiring but will hand over en primeur tasting responsibilities to British reviewer Neal Martin, while still covering the region’s wines from bottle. 

http://www.wsj.com/articles/robert-parker-steps-down-from-bordeaux-futures-1424966697?mg=id-wsj

Before that, Parker rated both en primeur and bottled wines in Bordeaux. En primeur are marketed in spring following the harvest, 18 months before bottling. For most people, it is difficult to taste these wines and, even if invited to these early tastings, it is difficult to judge these unfinished wines. Thus, there is a huge uncertainty regarding the final quality of each wine. Hence, people heavily rely on the expertise of wine critics to know which wine to purchase en primeur. Parker’s ratings, therefore, have a direct impact on demand and thereby on release prices

http://www.wine-economics.org/aawe/wp-content/uploads/2013/07/Masset_Weisskopf.pdf

Ever since his absolute reputation and powerful influence built by betting on Bordeaux 1982 vintage, which was panned by other wine critics at that time, Parker has covered nearly every vintage from Bordeaux and made undeniable impact on both its supply and demand in market, which is called “Parkerization” by Wikipedia, including the modification of winemaking process, the style preference, the price, etc. His 100-point rating system also challenged the 1855 Appellation system at consumer’s end. (He, and others, have said that it is the obscurity, corruption, and other problems of the appellation system that made his consumer-oriented approach necessary. )

Hence, undoubtedly, Parker’s stepping aside from barrel tasting may have an effect on the style of wines being produced. It is no secret that he favors the riper, fuller, fruitier style of châteaux, as opposed to a more traditional style favoring balance, elegance and finesse. In recent years there has been a move among certain châteaux to produce riper, smoother wines, and this could change if Parker’s influence in the region wanes.

Market wise, as some of the winemakers in Bordeaux may feel uncertain about their reactions; on the other side, we may also see new opportunities as the Parker’s Bordeaux fever calms down. Comparing to the times when châteaux could doubled their price following Parker’s rating, this announcement was good news for the futures system as they will be forced to start pricing conservatively again.

Understanding the Success of Yellow Tail

Following Friday's class, I did some more research into Yellow Tail and how the brand achieved such widespread success in the US markets.  

I learned that Yellow Tail is the brainchild of Deutsch Family Wine and Spirits, which has introduced and marketed a number of successful wine brands in the US. The company enjoyed tremendous success in the US with the French Beaujolais label 'Georges Duboeuf', but the Duboeuf brand became over-exposed in the late '90s and demand began to decline. Looking for the next big thing in the $10 price range, Deutsch Family Wine and Spirits determined that, "at this price level consumers are looking for a wine that was extremely ripe in flavor, fruit forward, with very easy to no tannins and a pleasant finish. We couldn’t generate this kind of wine at the sub $10 price level out of France, so we decided to look to Australia". 

Australia Offers Best Bang For Your Buck (in ~$6 category): According to Deutsch Family Wine and Spirits, sourcing grapes from Australia allows them to create best bottle of wine in the US market for six bucks.

Time was Ripe for Australian Wines in the US: Yellow Tail launched their product in the early 2000s, which was a time when Australia began to develop an international reputation for its Shiraz.  

Flavor Designed for US Palate: Yellow Tail was designed specifically for the US market and caters to Americans through its simple, fruity flavor profile. According to the company, “we wanted to give the US consumers what they wanted". While the company won’t admit it, some claim that Yellow Tail tampers with their wine to remove certain aspects like tannins and acidity that many people can find less appealing.  

Label Designed for US Preferences: Yellow Tail decided to take a risk and go forward with the bright yellow kangaroo label because it was completely different from everything else on American shelves. The label evokes the Aussie stereotype of a carefree, laid back lifestyle, which is appealing to American customers.

Today, Yellow Tail is the second best selling wine brand in the US (it recently lost the first position to Barefoot wines) and sells 8 million cases in the US annually. While Yellow Tail might not be the wine-of-choice for GSBers, it’s still an interesting case study on how to build and market a successful wine brand for the mass US market. 

Sources: http://vinepair.com/wine-blog/how-yellow-tail-gave-america-australian-wine/ , http://www.yellowtailwine.com